From: P & L Greenberg [plgreen@worldnet.att.net] Sent: Monday, September 23, 2002 12:34 PM To: rule-comments@sec.gov Subject: Petition for Rulemaking (SEC File No. 4-461) September 23, 2002 Mr. Jonathan G. Katz, Secretary U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Petition for Rulemaking (SEC File No. 4-461) Dear Mr. Katz: I wholeheartedly support the above referenced Petition calling for democracy in corporate elections. The present system for "electing" members of corporate boards of directors is undemocratic. In substantially all "elections," the candidates are, in reality, chosen by management. Since the shareholders own the company, they should have a voice in which candidates appear on the corporate ballot. The SEC should not sanction the present system that, in practice, resembles communism more than democracy. I have read many newspaper articles and Internet message board postings on the subject of democracy in corporate elections. The overwhelming majority supports the concept. Also, I have found a few elitists, anonymous skeptics and/or Naysayers. As set forth below, I will summarize those negative positions and state my opinions as to why those negative positions are totally without merit. 1. Too Many Director-Candidates Might Be Nominated. It is pure fear mongering to suggest that there might be thousands of director- candidates or to claim, without substantiation, that the process would be potentially "very unwieldy" or might produce "conflict and confusion." To cut the potential threat of long lists of director-candidates, if such could be considered a threat in a democracy and IF such should appear, corporations' bylaws could set reasonable minimum standards for candidacy; however, the candidates sponsored by management will, also, have to meet any elevated standards. (Further, director-qualification bylaws should not be enacted or amended without a vote of the shareholders.) Most persons know that, if elected as a director, they will expose themselves to potential liability, which will tend to cut the pool of those willing to be director-candidates. Further, in addition to the required disclosures set forth in the Petition, Rule 14a-8 sets forth a laundry list of procedural hurdles. Using, those hurdles, corporations, now, fight tooth and nail to keep Shareholder Proposals off their ballots. They would do even more to keep independent outsiders from entering into the presently exclusive country club called, " Board of Directors." The Shareholders Proposal procedure has been utilized for many years. It is not an experiment in an untried system. There has never been a Proxy Statement with thousands of Shareholder Proposals. Six Shareholder Proposals is usually a lot. In a democracy, shareholders deserve choices. 2. Allowing Shareholders To Make Director-Nominations Will Create Anarchy. The present system of selecting director-candidates, whereby, in substance, managements put the candidates on a corporation's ballot, resembles the political system formally practiced in Eastern Block countries - everyone had the right to vote, but only those selected by the Party got their names placed on the ballot. There was no anarchy under that system of government. Directors should know that either they do what is right for shareholders (the true owners) or they will be held accountable --- they can be voted out of office. This is not the way it now works. Directors who do what is right for shareholders should have no fear. 3. Shareholders Will Try To Micro-Manage Directors. There is no basis for such allegation. The idea is for truly independent directors to select quality management --- the people with the operating expertise. However, the independent directors need to "watch" management and the shareholders need a means by which to hold directors accountable. That's what I see as lacking at this time. Corporate governance may never be perfect, but needs to be improved. 4. Shareholder Proposals Should Be Used To Establish Ballot Access Standards. The idea has been tried. Corporations, relying upon the provisions of Rule 14a-8(i)(8), seek no-action letters from the SEC to keep such Shareholder Proposals off their proxy statements. The corporations have succeeded in doing so. 5. "Independent" Nominating Committees Or "Gatekeepers" Can Solve The Problem. Suggestions of "strengthening nominating committees" or having "independent nominating committees of independent directors" present circular arguments. The problem is that directors who are beholden to management for their selection, proxy solicitation costs and retention can never be truly independent. The present "election" procedure invites conflicts of interests. Use of "gatekeepers" is a code for keeping the status quo. We already have "gatekeepers." They are members of the boards of directors and managements. They keep the gates shut to shareholders. 6. Only Wealthy Shareholders Should Be Allowed to Nominate Candidates. SEC Rule 14a-8 now sets the standards, e.g., dollar value and holding period, for shareholders to utilize the Shareholder Proposal procedure. There has been no showing that the present criteria are not sufficient. Further, see 1, above. It seems most interesting that those who believe that the present Shareholder Proposal criteria are not sufficient seem to suggest standards at a level where they can afford to participate, but high enough to exclude the vast majority of the investing public. Such runs directly contrary to the philosophical basis upon which Rule 14a-8 was established. The real issue is whether a director-nominee, if elected, is qualified to perform as a director in the collective best interest of all shareholders and not an issue of the wealth of the person who nominated him/her. The shareholders, owners of the respective corporations, should not be precluded from deciding that basic issue. Implicit in the high percentage of stock ownership criterion is that persons of wealth will act as "watchdogs" for all shareholders in seeking director account- ability and that all shareholders can depend on them. History is void of precedent for that proposition. In very recent history, Ranger Governance, in substance, accepted $10 million from Computer Associates and then folded its corporate governance based proxy contest. Also, see, 14, below. Further, it should be noted that directors of many companies own only a minimal number of shares. Under some proposed wealth-based criteria, they would not be able to nominate themselves. 7. Candidates With Weird Political Agendas Might Nominate Themselves. No Shareholder would be required to vote for or against director-candidates, from either the left or right side of the political spectrum, with a political agenda. Shareholders should be given some credit for having a little smarts as to how to cast their votes. No shareholder would be required to vote for candidates "with agendas unrelated to the good of the company." 8. Just Establish More Corporate Governance Rules. At this time, on shareholders' behalves, Congress and the SEC have put forth laws and rules to micro-manage corporations. I feel that the better approach is to let boards of directors know that they can be held accountable --- shareholders have a simplified procedure to remove them from office. I believe, as said in Texas, "That'll work." 9. All That Is Needed Is To Get The Attention Of Management. What if we do something to "get the attention of management" and management ignores us? Boards of directors are notorious for ignoring Shareholder Proposals that have been approved by the vast majorities of shareholders. We still need a means to cause the boards of directors to enforce the expressed desires/interests of the shareholders. 10. This New Idea Won't Work. The simplified Shareholder Proposal procedure has been around for 10+ years. It is not a new idea. However, due to current SEC Rule 14a-8(i)(8), it cannot be used to nominate director-candidates. That's only the nomination. Shareholders will still decide who is elected. 11. Shareholders Should Wait To Let The Dust Settle. At this time, due to public outrage, managements and boards of directors are trying to put their best feet forward. When the disinfectant of sunlight moves to another area, they will go back to "business as usual." That will be especially true when they learn how difficult it is for prosecutors to prove criminal intent and how easy it is for them to use corporate assets to defend against and settle legal actions against them that were based upon allegations of misconduct. 12. This Is Only A "Feel Good" Idea. This is not a "feel good" idea. In fact, those directors who can't or won't cut the mustard will be made to feel real bad --- shareholders will push them out of the way to make room for those who can and will independently represent the shareholders. 13. Shareholders Are Too Dumb To Be Allowed To Nominate Director Candidates. In 1776, there were a few brave persons who decided that it was worth a try to promote democracy, regardless of the downside risks. Some even argued that the populace was too dumb to be able to vote properly or potential "games" might be played with the election process. With all of its warts, no better system of government has been invented. 14. Institutional Investors Will Make Managements Tow The Line. At this time Institutional Investors have the funds at their disposal to nominate director-candidates, put their candidates' names on their own separate ballots and conduct effective proxy campaigns. Substantially all other shareholders cannot afford the expense of approximately $250,000 that it takes --- as corporations are not required to put their names on their corporate ballots --- to run a proxy contest. However, perhaps out of some fear of legal exposure, substantially all Institutional Investors are NOT pro-active. The whole purpose of Shareholder Proposals was to allow the "little guy" a more level playing field, except where it really counts --- who shall represent the shareholders watching management. With non-management sponsored director-candidates on the corporate ballot, Institutional Investors, who are dissatisfied with management, can do more than vote "withhold" as a means of registering their dissatisfaction. 15. Institutional Investors Can Obtain Open Access To The Corporate Ballot. Institutional Investors can ask corporations to permit open access to the ballot. As the Committee of Concerned Shareholders has stated, "The last time someone voluntarily gave up substantial power was in 1798 when George Washington resigned from office." Again, I thoroughly support the Petition for Rulemaking (SEC File No. 4-461) and, for the reasons set forth above, believe that any contrary position is utterly without demonstrable merit. Please communicate with me in the event that further information is desired. Very truly yours, PAULETTE NEBRAT GREENBERG Culver City, CA